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Amazon Web Services (AWS) cut prices by up to 80% on its Elastic Compute Cloud (EC2) dedicated instances this week and said the changes went into effect retroactively to July 1. Industry watchers say the price cut is in response to market pressures.

With this most recent price cut, Amazon hopes the move will intrigue new enterprise customers and pull them away from competitors.

"Amazon doesn't want to be caught in a position where they're charging the most," said Carl Brooks, research analyst for Boston-based 451 Research. "They want to be known as the industry standard. They want to maintain the competitive edge."

He continued by saying that while Amazon wants to remain the leader of the Infrastructure as a Service (IaaS) space, it wants to be a middle-of-the-pack service on pricing.

"Never has there been a more legitimate infrastructure for users," he said. "Companies are making it easier to get all these services. Clients want and need these services and know where to get them. So dropping prices will keep customers coming and business going. It's a smart business model."

Competition will only get stiffer from Amazon's rivals, too.

Amazon knows that its main competitors can cut their prices as well, and it puts pressure on them, said John Treadway, senior vice president at Boston-based Cloud Technology Partners.

"Pricing is huge in market entry," Treadway said. "It makes [Amazon] more attractive to enterprise users. Amazon's [main focus] is to acquire more enterprises, so overall, it's a good move because they'll capture more business."

Amazon knows people will always go for the lower price, and that it's less about competitors and more about pricing, Treadway said.

"It's enticing to new applicants that run internally to go to Amazon now," Treadway said. "The value to move to Amazon is stronger."

Enterprise IT pros like to have control over their whole servers, and dedicated instances gives them the option to do that along -- with more security and performance.

AWS dedicated instance pricing details, analysis

Dedicated instances were launched by Amazon in 2011 and run on hardware dedicated to a single customer account. According to AWS, "they're ideal for workloads where corporate policies or industry regulations dictate physical isolation from instances run by other customers at the host hardware level."

Dedicated per region fee: An 80% price reduction from $10 per hour to $2 per hour in any region where at least one dedicated instance of any type is running.

Dedicated on-demand instances: A reduction of up to 37% in hourly costs. For example the price of anm1.xlarge dedicated instance in the U.S. East (northern Virginia) Region will drop from $0.840 per hour to $0.528 per hour.

Dedicated reserved instances: A reduction of up to 57% on the reserved instance upfront fee and the hourly instance usage fee. Dedicated reserved instances also provide additional savings of up to 65% compared to dedicated on-demand instances.

As far how this price cut helps Amazon down the road, Brooks believes the company will keep growing and its profits will double this year.

Treadway also believes it puts pressure on other cloud companies, such as Rackspace and Google, among others, to offer lower prices or even other services, too.

In addition, he thinks the price drop is in response to a competitive market.

"Microsoft is usually the one that creates response or initiates price cuts," Treadway said. "That said, anytime you lower prices, it's usually in response to something. Maybe the price differential is narrow between them. Basically, this is a race to zero, and who can get there first."

He added that it'll be interesting to see if Google gains any type of traction to this cut. But regardless of what its competitors are doing, Amazon has big plans for the future.

"Amazon cares more about the customer than what the competition does," he added. "Their goal is to become huge and has the potential to be a $20 billion business."

Michael Anderson is an Assistant News Writer for the news department of the Data Center and Virtualization media group. He can be reached at manderson@techtarget.com.

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